Small businesses that cannot afford to pay their staff a living wage should probably not be in business at all, a union leader says.

First Union general secretary Robert Reid said while the movement supporting a living wage of at least $18.40 an hour was generally targeted at large corporations and city councils, some undercapitalised small to medium-sized enterprises (SMEs) needed to think about their business practices as well.

"Why should a worker suffer for being employed by a business that maybe shouldn't exist? One which won't invest in technology but thinks it can exist because it pays staff starvation wages?" said Reid, whose union covers workers in the finance, industrial, retail, stores and transport sectors.

Reid was responding to earlier comments from Auckland employment law specialist Max Whitehead, who said the introduction of the proposed living wage would send thousands of Kiwis across the Tasman to find work after their small businesses failed.

Reid said there was a danger of having a "race backwards" if key decisions on the nation's direction were based only on placating small and medium-sized firms. "We are in danger of those business owners then saying they would be better off if the minimum wage was $10, or $5 or, nothing at all."

Reid said several owners of smaller firms had been among the first to commit to paying staff the living wage. One is Jesse Chalmers, owner of Auckland company Tonzu, which makes organic tofu.

Chalmers said the decision to pay several staff the $18.40 rate was a mix of ethics and business. The crucial thing was there had to be tangible rewards for the business.

One should be a reduction in staff turnover, she said.

But the higher wage still had to make business sense, she said. "We are always looking for savings and efficiencies, less wastage. So that is where the cost of implementing the wage increase would come from. It's amazing how, when you really have an incentive, you can always find cost savings."

Tonzu had "eight to nine" staff, six of whom would be affected by the wage increase, which would be based on an incentive system.

She did not support an across-the-board implementation of the proposed $18.40 as it would hit many smaller firms hard.

"Some SMEs really struggle with their financial management as it is, and these times people are struggling. It needs to be done carefully," she said.

Westpac chief economist Dominick Stephens said an across-the-board shift to the "living wage" would lead to increased unemployment.